Legislature(1999 - 2000)
04/03/2000 09:05 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 289(L&C)
"An Act establishing and relating to the Alaska Board
of Technical and Vocational Education; and providing
for an effective date."
This was the second hearing for this bill in the Senate
Finance Committee. At the previous hearing, the Committee
adopted a committee substitute, 1-LS1525\M and Co-Chair
Torgerson asked the Department of Labor and Workforce
Development to detail how the program works and its
relation to language of the committee substitute.
AT EASE 9:33 AM / 9:35 AM
TOM WYLIE, Unemployment Insurance Actuary, Research and
Analysis, Division of Employment Security, Department of
Labor and Workforce Development, gave a presentation using
a handout. [Copy on file.] He addressed the "Basic Parts of
Unemployment Insurance (UI) Tax Rate Calculation"
flowchart. He detailed the "First Stage: Affects Employers
and Employees" shows the relationship of unemployment
benefit costs to total wages and taxable wages, and the
"Second Stage: Affects Employer Only" details the solvency
of the trust fund and if necessary either adds to or
subtracts from the UI tax rate.
Mr. Wylie explained that the calculations takes total
benefit cost over a three year period and defines them by
payroll tax cost, which then provides a ratio. He continued
that the ratio is then multiplied by the relationship
between taxable wages and the wage of pay by employers. He
noted that only certain portion of wages is taxable. He
established that the portion is $24,800 per year as set in
state statute. Once that average is produced, he said the
amount is divided into an employer tax and an employee tax
with the employer paying 80 percent and the employee paying
20 percent of that tax.
Mr. Wylie then detailed the second stage saying the trust
fund is examined to determine its solvency in relationship
to total payroll in the state. He told of a state UI
statute that sets out a process of dividing the trust fund
by total payroll and comparing it to a schedule. If the
trust fund has fallen below 3.3 percent of total payroll,
Mr. Wylie said an add-on tax is placed on top of the
employer's tax, but if the fund is above 3.3 percent, the
employer's tax is reduced. He noted that the employee tax
is not affected by the trust fund solvency.
Co-Chair Parnell asked when the last adjustment was made to
the employer's tax rate.
Mr. Wylie replied that the rate was adjusted downward in
the previous year and that there was no need for an
adjustment in the current year.
Co-Chair Torgerson asked the reason anyone would receive a
higher rate and whether experience was a factor.
Mr. Wylie explained how employers were placed into one of
21 rate classes depending on their experience with
unemployment, half of which were above the actual tax rate
and half were below.
Mr. Wylie then stated that the committee substitute does
not interface with the UI tax rate. Instead, he explained
it proposes a new tax of .15 percent on both the employer
and the employee using the UI mechanism to set the taxable
income amount and also using the UI office to collect the
taxes.
At the request of Co-Chair Torgerson, Mr. Wylie then
explained the STEP program. He told how current statute
requires diverting 0.1 percent of the employee's taxable
wages from the trust fund into the STEP program. The
employee's UI tax rate is then credited and the employee
has met the UI contribution requirement. This information
was detailed on the second page of the handout.
Co-Chair Torgerson asked if an amount would be collected
for vocational training assessment separately from the
usual UI mechanism.
Mr. Wylie affirmed and stated that the UI tax office would
collect this tax because it is the most convenient method,
but that the funds would not be deposited into a separate
account than the UI trust fund. He described how the money
would be diverted into this account.
Co-Chair Torgerson asked for verification that the
employee's deduction would not be affected.
Mr. Wylie assured him that was correct.
Co-Chair Torgerson began to address where the adjustment
would be made to allow for the vocation training assessment
fund.
Mr. Wylie stated that further implications of this
additional fund would be the resulting diversion away from
the UI trust fund and the lower collection into the trust
fund. He noted the impact would not be seen during the
first stage of the tax collection, but would be seen in the
second because the calculations would show a need to
increase the employer's tax rate to build up the balance of
the trust.
RONALD HULL, Deputy Director, Division of Employment
Security, Department of Labor and Workforce Development,
noted the committee substitute is not like the STEP program
because there is no credit and requires an additional add-
on tax. He stated there are two different options to fund
the vocational training assessment program, one that does
not affect the UI tax rates and the other that does.
Co-Chair Torgerson said that the UI tax rate would not
necessarily be affected by the add-on tax if 0.2 percent of
the employee's tax was used and depending on the strength
and solvency of the fund.
Mr. Wylie agreed and explained the likelihood that once the
program was established the tax for the vocational fund
would be indiscernible from the many other factors
influencing the amount of the total UI tax.
Senator P. Kelly asked how the credit was calculated for
the employee portion of the tax.
Mr. Wylie clarified this bill has no credit and he
explained the current STEP process. He said that Co-Chair
Torgerson approach, as proposed in the committee
substitute, was to fund the vocational training component
differently.
There was further discussion between Senator P. Kelly and
the witness regarding the current calculation of the UI
taxes.
Senator Phillips referred to page 6 of bill and asked if
state or federal law prohibited private schools from
receiving funds generated from this source.
Co-Chair Torgerson stated that the money collected this
year would be disbursed under the current method and the
money collected the next year would go to accredited
institutions. He stressed that there were no limitations on
private schools receiving the funds other than that they
must be accredited.
Senator Phillips then asked why there was a special
provision for a transitional period.
Co-Chair Torgerson responded that he used his discretion as
chair in making that decision.
Senator Phillips asked the witness to look into whether
there were any state or federal laws restricting which
schools received these funds.
Senator Wilken referred to the flowchart and asked that
even with the decrease of 0.2 percent funding the trust
fund, if the balance went down and total wages increased,
there would be no difference to the amount taxed.
Mr. Hull replied that because the Alaskan economy varies
greatly over time, many of the changes to the tax amount
could be "overwhelmed by economic forces within the state."
Therefore, he said Senator Wilken's question couldn't be
answered unless all other factors were equal. He used the
current year as an example of how the proposed provisions
would affect the tax amount. He stated that if employment
greatly increased and unemployment was reduced, the trust
fund might then increase on its own and there would be no
need to increase the tax.
Tape: SFC - 00 #74, Side B 9:55 AM
Mr. Hull continued explaining how different factor affect
the trust fund.
Senator Wilken commented that as a small business employer
he was not interested in imposing a higher tax rate, but at
the same time, wanted a fully trained workforce. He noted
that this legislation does not necessarily increase the tax
rates automatically and that they could actually decrease.
Mr. Wylie agreed.
Co-Chair Torgerson ordered the bill HELD in Committee and
announced his intention to amend the bill to mirror the
STEP program. He stated it was not his intent to jeopardize
the trust fund.
| Document Name | Date/Time | Subjects |
|---|